Intrinsic value of Sequans Communications ADR - SQNS

Previous Close

$1.91

  Intrinsic Value

$1.16

stock screener

  Rating & Target

sell

-39%

  Value-price divergence*

0%

Previous close

$1.91

 
Intrinsic value

$1.16

 
Up/down potential

-39%

 
Rating

sell

 
Value-price divergence*

0%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of SQNS stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  39.39
  30.00
  27.50
  25.25
  23.23
  21.40
  19.76
  18.29
  16.96
  15.76
  14.69
  13.72
  12.85
  12.06
  11.35
  10.72
  10.15
  9.63
  9.17
  8.75
  8.38
  8.04
  7.74
  7.46
  7.22
  6.99
  6.79
  6.62
  6.45
  6.31
  6.18
Revenue, $m
  46
  60
  76
  95
  118
  143
  171
  202
  237
  274
  314
  357
  403
  452
  503
  557
  614
  673
  734
  799
  866
  935
  1,008
  1,083
  1,161
  1,242
  1,327
  1,414
  1,506
  1,601
  1,699
Variable operating expenses, $m
 
  42
  53
  66
  82
  99
  119
  141
  165
  191
  219
  249
  281
  315
  350
  388
  427
  468
  511
  556
  603
  651
  701
  754
  808
  865
  923
  984
  1,048
  1,114
  1,183
Fixed operating expenses, $m
 
  35
  36
  37
  38
  38
  39
  40
  41
  42
  44
  45
  46
  47
  48
  49
  50
  52
  53
  54
  56
  57
  59
  60
  61
  63
  65
  66
  68
  70
  71
Total operating expenses, $m
  65
  77
  89
  103
  120
  137
  158
  181
  206
  233
  263
  294
  327
  362
  398
  437
  477
  520
  564
  610
  659
  708
  760
  814
  869
  928
  988
  1,050
  1,116
  1,184
  1,254
Operating income, $m
  -20
  -17
  -13
  -8
  -2
  5
  13
  21
  31
  41
  52
  64
  77
  91
  105
  120
  136
  153
  170
  188
  207
  227
  248
  269
  291
  315
  339
  364
  390
  417
  445
EBITDA, $m
  -15
  -14
  -9
  -3
  3
  11
  20
  30
  41
  53
  66
  80
  94
  110
  127
  144
  163
  182
  202
  223
  245
  268
  292
  316
  342
  368
  396
  425
  455
  486
  519
Interest expense (income), $m
  0
  1
  1
  1
  2
  2
  3
  4
  5
  6
  7
  8
  10
  11
  13
  14
  16
  17
  19
  21
  23
  25
  27
  29
  32
  34
  36
  39
  42
  44
  47
Earnings before tax, $m
  -25
  -17
  -13
  -9
  -4
  3
  9
  17
  26
  35
  45
  56
  67
  79
  92
  106
  120
  135
  151
  167
  184
  202
  221
  240
  260
  281
  302
  325
  348
  373
  398
Tax expense, $m
  0
  0
  0
  0
  0
  1
  3
  5
  7
  9
  12
  15
  18
  21
  25
  29
  33
  37
  41
  45
  50
  55
  60
  65
  70
  76
  82
  88
  94
  101
  108
Net income, $m
  -25
  -17
  -13
  -9
  -4
  2
  7
  12
  19
  25
  33
  41
  49
  58
  67
  77
  88
  99
  110
  122
  135
  148
  161
  175
  190
  205
  221
  237
  254
  272
  291

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  21
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  65
  57
  73
  91
  113
  137
  164
  194
  227
  262
  301
  342
  386
  432
  482
  533
  587
  644
  703
  764
  828
  895
  964
  1,036
  1,111
  1,189
  1,269
  1,353
  1,441
  1,532
  1,626
Adjusted assets (=assets-cash), $m
  44
  57
  73
  91
  113
  137
  164
  194
  227
  262
  301
  342
  386
  432
  482
  533
  587
  644
  703
  764
  828
  895
  964
  1,036
  1,111
  1,189
  1,269
  1,353
  1,441
  1,532
  1,626
Revenue / Adjusted assets
  1.045
  1.053
  1.041
  1.044
  1.044
  1.044
  1.043
  1.041
  1.044
  1.046
  1.043
  1.044
  1.044
  1.046
  1.044
  1.045
  1.046
  1.045
  1.044
  1.046
  1.046
  1.045
  1.046
  1.045
  1.045
  1.045
  1.046
  1.045
  1.045
  1.045
  1.045
Average production assets, $m
  10
  13
  17
  21
  26
  31
  37
  44
  51
  59
  68
  78
  88
  98
  109
  121
  133
  146
  159
  173
  188
  203
  219
  235
  252
  270
  288
  307
  327
  347
  369
Working capital, $m
  19
  8
  10
  12
  15
  19
  22
  26
  31
  36
  41
  46
  52
  59
  65
  72
  80
  87
  95
  104
  113
  122
  131
  141
  151
  161
  172
  184
  196
  208
  221
Total debt, $m
  24
  20
  34
  50
  69
  91
  115
  142
  172
  204
  239
  276
  315
  357
  401
  448
  497
  547
  601
  656
  714
  773
  836
  901
  968
  1,038
  1,110
  1,186
  1,265
  1,346
  1,432
Total liabilities, $m
  56
  52
  66
  82
  101
  123
  147
  174
  204
  236
  271
  308
  347
  389
  433
  480
  529
  579
  633
  688
  746
  805
  868
  933
  1,000
  1,070
  1,142
  1,218
  1,297
  1,378
  1,464
Total equity, $m
  9
  6
  7
  9
  11
  14
  16
  19
  23
  26
  30
  34
  39
  43
  48
  53
  59
  64
  70
  76
  83
  89
  96
  104
  111
  119
  127
  135
  144
  153
  163
Total liabilities and equity, $m
  65
  58
  73
  91
  112
  137
  163
  193
  227
  262
  301
  342
  386
  432
  481
  533
  588
  643
  703
  764
  829
  894
  964
  1,037
  1,111
  1,189
  1,269
  1,353
  1,441
  1,531
  1,627
Debt-to-equity ratio
  2.667
  3.410
  4.610
  5.500
  6.160
  6.660
  7.050
  7.350
  7.590
  7.780
  7.940
  8.060
  8.170
  8.260
  8.340
  8.400
  8.460
  8.500
  8.540
  8.580
  8.610
  8.640
  8.670
  8.690
  8.710
  8.730
  8.750
  8.760
  8.780
  8.790
  8.800
Adjusted equity ratio
  -0.273
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -25
  -17
  -13
  -9
  -4
  2
  7
  12
  19
  25
  33
  41
  49
  58
  67
  77
  88
  99
  110
  122
  135
  148
  161
  175
  190
  205
  221
  237
  254
  272
  291
Depreciation, amort., depletion, $m
  5
  3
  3
  4
  5
  6
  7
  9
  10
  12
  14
  16
  18
  20
  22
  24
  27
  29
  32
  35
  38
  41
  44
  47
  50
  54
  58
  61
  65
  69
  74
Funds from operations, $m
  -19
  -15
  -10
  -5
  2
  8
  14
  21
  29
  37
  46
  56
  67
  78
  89
  102
  115
  128
  142
  157
  172
  188
  205
  222
  240
  259
  278
  299
  320
  342
  364
Change in working capital, $m
  -3
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
Cash from operations, $m
  -16
  -16
  -12
  -7
  -1
  5
  11
  17
  24
  32
  41
  51
  61
  71
  83
  95
  107
  120
  134
  149
  164
  179
  195
  212
  230
  248
  267
  287
  308
  329
  352
Maintenance CAPEX, $m
  0
  -2
  -3
  -3
  -4
  -5
  -6
  -7
  -9
  -10
  -12
  -14
  -16
  -18
  -20
  -22
  -24
  -27
  -29
  -32
  -35
  -38
  -41
  -44
  -47
  -50
  -54
  -58
  -61
  -65
  -69
New CAPEX, $m
  -5
  -3
  -4
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
Cash from investing activities, $m
  -5
  -5
  -7
  -7
  -9
  -10
  -12
  -14
  -16
  -18
  -21
  -23
  -26
  -29
  -31
  -34
  -36
  -40
  -42
  -46
  -50
  -53
  -57
  -60
  -64
  -68
  -72
  -77
  -81
  -86
  -90
Free cash flow, $m
  -21
  -21
  -18
  -15
  -10
  -6
  -2
  3
  8
  14
  21
  28
  35
  43
  52
  61
  71
  81
  92
  103
  114
  127
  139
  152
  166
  180
  195
  210
  227
  243
  261
Issuance/(repayment) of debt, $m
  9
  4
  14
  17
  19
  22
  24
  27
  30
  32
  35
  37
  40
  42
  44
  46
  49
  51
  53
  55
  58
  60
  62
  65
  67
  70
  73
  76
  79
  82
  85
Issuance/(repurchase) of shares, $m
  24
  27
  15
  11
  6
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  33
  31
  29
  28
  25
  23
  24
  27
  30
  32
  35
  37
  40
  42
  44
  46
  49
  51
  53
  55
  58
  60
  62
  65
  67
  70
  73
  76
  79
  82
  85
Total cash flow (excl. dividends), $m
  12
  9
  11
  13
  14
  16
  23
  30
  38
  46
  55
  65
  75
  85
  96
  108
  119
  132
  145
  158
  172
  186
  201
  217
  233
  250
  268
  286
  305
  325
  346
Retained Cash Flow (-), $m
  -10
  -27
  -15
  -11
  -6
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
Prev. year cash balance distribution, $m
 
  13
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -5
  -4
  2
  9
  14
  20
  27
  35
  43
  51
  61
  70
  80
  91
  102
  114
  126
  139
  152
  166
  180
  195
  210
  226
  242
  260
  278
  296
  316
  336
Discount rate, %
 
  6.40
  6.72
  7.06
  7.41
  7.78
  8.17
  8.58
  9.01
  9.46
  9.93
  10.42
  10.95
  11.49
  12.07
  12.67
  13.31
  13.97
  14.67
  15.40
  16.17
  16.98
  17.83
  18.72
  19.66
  20.64
  21.67
  22.76
  23.89
  25.09
  26.34
PV of cash for distribution, $m
 
  -5
  -4
  2
  7
  10
  12
  15
  17
  19
  20
  20
  20
  20
  18
  17
  15
  14
  12
  10
  8
  7
  5
  4
  3
  2
  2
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  39.7
  34.7
  32.7
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5
  32.5

Sequans Communications S.A. is a fabless designer, developer and supplier of fourth Generation long term evolution (4G LTE) semiconductor solutions for wireless broadband applications, with a specific focus on the single-mode device market. Its semiconductor solutions integrate baseband processor and radio frequency (RF) transceiver integrated circuits (ICs) along with its signal processing techniques, algorithms and software stacks. In the broadband data device market, its solutions serve as the wireless communications platform in devices, such as smartphones; Universal Serial Bus (USB) dongles; portable routers; embedded wireless modems for laptops, tablets, and other consumer multimedia devices; and customer-premises equipment, such as fixed wireless access modems, routers and residential gateways. The Company's products include SQN3330, SQN3223, SQN3221, SQN3241, VZ120Q, VZ22Q, VZ22M, US60L, SQN3220, SQN3240, SQN3120, SQN5120, SQN3140, VZ20Q, VZ20M, SQN1210 and SQN1220.

FINANCIAL RATIOS  of  Sequans Communications ADR (SQNS)

Valuation Ratios
P/E Ratio -5.7
Price to Sales 3.1
Price to Book 15.9
Price to Tangible Book
Price to Cash Flow -9
Price to Free Cash Flow -6.8
Growth Rates
Sales Growth Rate 39.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 4.6%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 177.8%
Total Debt to Equity 266.7%
Interest Coverage 0
Management Effectiveness
Return On Assets -43.9%
Ret/ On Assets - 3 Yr. Avg. -51.4%
Return On Total Capital -106.4%
Ret/ On T. Cap. - 3 Yr. Avg. -105.4%
Return On Equity -625%
Return On Equity - 3 Yr. Avg. -310.3%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 43.5%
Gross Margin - 3 Yr. Avg. 37.8%
EBITDA Margin -43.5%
EBITDA Margin - 3 Yr. Avg. -77.3%
Operating Margin -41.3%
Oper. Margin - 3 Yr. Avg. -86.3%
Pre-Tax Margin -54.3%
Pre-Tax Margin - 3 Yr. Avg. -94.7%
Net Profit Margin -54.3%
Net Profit Margin - 3 Yr. Avg. -94.7%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

SQNS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SQNS stock intrinsic value calculation we used $46 million for the last fiscal year's total revenue generated by Sequans Communications ADR. The default revenue input number comes from 2016 income statement of Sequans Communications ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our SQNS stock valuation model: a) initial revenue growth rate of 30% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 6.4%, whose default value for SQNS is calculated based on our internal credit rating of Sequans Communications ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Sequans Communications ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of SQNS stock the variable cost ratio is equal to 69.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $34 million in the base year in the intrinsic value calculation for SQNS stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Sequans Communications ADR.

Corporate tax rate of 27% is the nominal tax rate for Sequans Communications ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the SQNS stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for SQNS are equal to 21.7%.

Life of production assets of 2 years is the average useful life of capital assets used in Sequans Communications ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for SQNS is equal to 13%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $9 million for Sequans Communications ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 75.872 million for Sequans Communications ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Sequans Communications ADR at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Sequans Updates Third Quarter Guidance   [Oct-03-17 08:00PM  Business Wire]
Financial statements of SQNS
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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